Sprint swoops in with $1.6B deal to save Clearwire

We can stop wondering if Clearwire will default on its interest payment, for the time being anyhow. Sprint, which owns almost half of Clearwire, has stepped up with a plan to spend $1.6 billion over the next four years that will help Clearwire stay solvent, and Clearwire said it would make its $237 million debt payment. Basically both companies were like Arctic explorers stuck out in the freezing cold. They can’t go it alone, but if they huddle together for warmth they might just have a chance.

Clearwire and Sprint could still freeze to death together, but this is their best chance to pull together an LTE network after their failed bet on WiMAX and still counteract the growing power of AT&T and Verizon. Sprint also plans to launch network devices for its proposed LTE-Advanced network in 2013, which would put Sprint and Clearwire back on even footing with rivals that are currently offering LTE services.

The terms and fine print

As part of the agreement Sprint will pay $926 million to Clearwire so it can continue to use Clearwire’s WiMAX network in 2012 and 2013 while Sprint pulls together its own LTE-Advanced network. Sprint also said it would provide support for future LTE services from its network. The deal combines the payment for WiMAX services with prepayments for LTE network services and a possible equity investment.

Sprint will pay Clearwire a total of $926 million, approximately two-thirds of which will be paid in 2012, for unlimited 4G WiMAX retail services during 2012 and 2013. That seems like a lot to pay for a dying 4G technology, but Sprint doesn’t have much choice, since it is harnessed to a CDMA network that can’t be upgraded easily to match the speeds currently offered by AT&T, Verizon and T-Mobile. The agreements also establish long-term usage-based pricing for WiMAX services in 2014, and Sprint will have access to Clearwire’s WiMAX network through at least 2015. Sprint said it plans to continue selling WiMAX devices with two-year contracts through at least 2012 and will support those devices through the life of the contract.

Clearwire has also wrangled up to $350 million in prepayments from Sprint over a period of up to two years for LTE capacity if Clearwire achieves certain buildout targets and network specifications by June 2013. The companies have agreed to collaborate on a network build plan and will jointly select LTE macro-cell sites to cover Sprint’s high usage area hotspots. Clearwire said it plans to seek additional funding before initiating the buildout of its LTE-Advanced-ready network. So Sprint is giving Clearwire the money to start its conversion to LTE, which Clearwire has said will cost it $600 million in additional capital, and Sprint will drive the placement of towers and base stations to its advantage. This might mess with Clearwire’s previously stated plan to offer its LTE-Advanced network as a source of backhaul and extra capacity on a wholesale basis to any and all comers.

For Sprint customers, the good news is buried in the release and with the caveat that the network needs to get built, but Sprint said it expects to launch devices, including laptop cards and phones, that will utilize Clearwire’s TDD-LTE network in 2013. That’s great for those wanting faster speeds.

Finally, Sprint said it would provide more equity to Clearwire if Clearwire has to tap the equity markets — which it likely will. Essentially, Sprint will calculate the amount required to keeps its current voting interest of 49.6 percent. While I wouldn’t say this deal means the two companies are happy about their continued partnership, they clearly recognize that to go it alone would be suicide.